Economic Stimulus Act of 2008
There are many measures to contain the economy from depression, but one of the most positively proven is Keynesian theory and the legislation built on its basis. The Economic Stimulus Act of 2008 is one such policy designed to stabilize the economy and correct a recession. This essay aims to analyze this law, its correspondence to the Keynesian theory, and its impact on the problem situation.
The essence of this legislative act was to provide citizens and organizations with several tax benefits. Recovery rebates of up to $600 per person and incentives for business investment were used to influence the economy (Economic Stimulus Act, 2008). Similar measures were taken in the context of entrepreneurs, thereby stimulating them to continue the business. From a theoretical perspective, such an approach corresponds quite well to the principles of the Keynesian theory. According to its directions, the main factor driving the economy is consumer demand for goods and services (Probasco, 2022). Therefore, the state, in such cases, needs to intervene and stimulate citizens. However, as the practice has shown, the impact of the Economic Stimulus Act turned out to be more modest than the financiers expected. Instead of spending money, most of the stimulus checks given out were kept by people (Murray, 2009). Accordingly, since the money was not returned to the economy, the effect of this law on the recession was less than expected.
Thus, the Economic Stimulus Act is a good example of implementing Keynesian economic theory from a theoretical perspective. This bill aimed to increase economic demand through the provision of incentives and investment, as well as through the indirect return of money to citizens. However, in practice, it proved to be much less effective due to the tendency of people to keep the money. Such an effect could be neutralized by introducing more stringent control over the issuance and spending of funds, ensuring a guaranteed return of cash back to the economy.
CARES Act
Economic problems can arise for various reasons, including large-scale catastrophes. The COVID-19 pandemic is one of the most significant events of 2020, which is still reverberating in healthcare and the economy. As so many people are economically disadvantaged by the pandemic, the US government has issued a special law designed to make life easier for society: the CARES Act. This essay aims to analyze this law, test it for compliance with the principles of Keynesian theory, and assess the bill’s impact on the real economy.
The main essence of the CARES Act, which stands for Coronavirus Aid, Relief, and Economic Security, is a set of measures to alleviate the pandemic situation. In this context, the state has provided funds for food and drug programs and modified existing health programs to make them easier to access (CARES Act, 2020). In addition, the government provided direct monetary support to the population. From a theoretical perspective, a combination of these approaches is also relevant and consistent with the principles of the Keynesian approach. In this case, the state assumes the obligations of consumers who cannot afford their usual expenses and fills this economic hole with additional funding. Thus, people have the opportunity to save on various services that have risen in price, which ultimately should have a positive effect on the economy. As practice shows, such an approach favorably affected the situation. However, the researchers note that, unlike in previous crises, the available stimulus was spent on food (Baker et al., 2020). In addition, poor people were most affected by the incentives, while wealthier families were completely unstimulated.
Thus, the impact of the CARES Act on the economy also turned out to be lower than expected. Although this bill successfully supported the poorer part of the population, its impact has been uneven. Despite following the Keynesian principles, it is necessary to consider additional factors for a more effective impact on society and the economy. Nevertheless, it can be concluded that the general adherence to the methods of Keynesian theory has a positive effect on the outcome of anti-recession measures.
References
Baker, S. R., Farrokhnia, R. A., Meyer, S., Pagel, M., & Yannelis, C. (2020). Income, liquidity, and the consumption response to the 2020 economic stimulus payments. National Bureau of Economic Research, 27097. Web.
CARES Act, Publ. L. No. 116-136. (2020). Web.
Economic Stimulus Act of 2008, Publ. L. No. 110-185. (2008). Web.
Murray, S. (2009). Most 2008 stimulus checks were saved, not spent. The Wall Street Journal. Web.
Probasco, J. (2022). Keynesian economics: A Depression-era idea that’s seen a resurgence in the 21st century. Business Insider. Web.